Hawaii ~ Personal Income Tax: Legislature Approves Tax Rate Changes, New Earned Income Tax Credit, Food/Excise Tax Credit Changes

CCH Tax Day Report

The Hawaii Legislature has approved a bill that, if approved by the governor, would change personal income tax rates, establish a state earned income tax credit, and repeal the sunset date for prior amendments made to the food/excise tax credit.

Tax Rates

For taxable years beginning after 2017, 9%, 10%, and 11% tax brackets would return for married taxpayers filing jointly and surviving spouses with taxable income over $300,000, heads of household with taxable income over $225,000, and married taxpayers filing separately and single individuals (other than surviving spouses and heads of household) with taxable income over $150,000. Currently, the top marginal tax rate is 8.25%. Previously, 9%, 10%, and 11% tax brackets were in effect for taxable years 2009 through 2015.

Earned Income Tax Credit

For taxable years beginning after 2017 and before 2023, a qualifying individual would be allowed to claim a nonrefundable state earned income tax credit equal to 20% of the federal earned income tax credit allowed and claimed on the individual’s federal return. For a part-year resident, the tax credit would equal the calculated credit amount multiplied by the ratio of Hawaii adjusted gross income to federal adjusted gross income. A “qualifying individual” would be an individual that files a federal return for the taxable year claiming the earned income tax credit under IRC §32 and files a Hawaii return using the same filing status and claiming the same dependents as on the federal return. If the credit exceeds an individual’s tax liability, the excess credit could be carried forward until exhausted. The credit would be disallowed for a period of 10 years after a final administrative or judicial decision that a taxpayer’s claim for the credit was due to fraud and for a period of two years after a final administrative or judicial decision disallowing a taxpayer’s claim for the credit.

Food/Excise Tax Credit

The sunset date for amendments made by Act 223 (S.B. 555), Laws 2015, to the refundable food/excise tax credit would be repealed. Currently, the amendments are scheduled to be repealed and the former credit provisions are scheduled to be reenacted on December 31, 2017.

H.B. 209 as passed by the Hawaii House of Representatives and Senate on May 2, 2017

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